Supply Chain Management

Dr. S Panneerselvam Associate Professor P.G. Dept. of Management Studies Siddaganga Institute of Technology Tumkur 572 103.

Books
Sunil Chopra and Peter Meindl, Supply Chain Management Strategy, Planning and Operation, PHI, 4th Edition, 2011. Martin Christopher, Logistics and Supply Chain Management, Prentice Hall, 3rd Edition, 2005. Jeremy F Shapiro, Modeling the Supply Chain, Cengage Learning, 2nd Edition, 2007. Mohanty R P, Deshmukh S G, Supply Chain Management, Theories and Practices, biztantra, 2005. Supply Chain Logistics Management, Donald J Bowersox, David J Closs, M Bixby Cooper, Tata McGraw-Hill, 2nd Edition, 2008 Supply Chain Management, K Shridhara Bhat, 2010, Himalaya Publishing House

Books
Wisner, Keong Leong and Keah-Choon Tan, Principles of Supply Chain Management A Balanced Approach, Thomson Press, 2005. David Simchi-Levi et al, Designing and Managing the Supply Chain Concepts, Strategies, and Case Studies, McGraw Hill International Edition 2003. Gattorna J L and Walters D W, Managing the Supply Chain A Strategic Perspective, Palgrave 1996. Sahay B S, Supply Chain Management in the twenty-first century, Macmillan 2000.

Evolution of SCM
Until about mid 1950's, the term supply chain (management) was unheard of. The piecemeal and isolated fragmented set of activities was rampant. Production and manufacturing were given uppermost attention. The inventory was the responsibility of the marketing, accounting and/or production areas. Order processing was an accounting or sales responsibility. This fragmented way resulted in a great deal of friction on account of the conflicting objectives between production, marketing, accounting and finance.

Evolution of SCM (Contd.)

This led to the assertion in the early 1960's that logistics was one of the real frontiers of opportunity for enterprises to improve their corporate efficiency. Initial focus and emphasis was on the internal front, limited to productivity within the four walls of the factory or manufacturing till the 1970's. During the Ethiopian famine relief efforts of the 1980's, the term logistics was applied to the food-supply activities. In early 1900s, the farm products distributors realized the importance for providing time and place utility. The word logistics was first associated with the military in 1905 as a branch of war that pertains to the movement and the supply for armies.

Evolution of SCM (Contd.)

During World War II, military forces made effective use of logistics models and forms of systems analysis to ensure that the required material was at the right place on time every time. The evolution of the SCM has moved from disparate functions of logistics, transportation, purchasing and supplies and physical distribution to focus on integration, visibility, cycle time reduction and streamlined channels.

Supply Chain Management

Supply comprises all activities required to deliver products to the customer.
This includes designing products, receiving orders, procuring materials, marketing, manufacturing, logistics, customer service, receiving payment and so on. Anything that influences a products time-to-market, price, quality, information exchange and delivery, among other activities, is part of the supply chain. The Supply Chain Management (SCM) calls for the integration of all the members of the supply chain namely suppliers, distributors, retailers, etc. into a harmonious operating entity.

SCM, which began literally as a tool for managing supply of produced goods, has come a long way to occupy a key position in an organisations decision making process. Traditional Vs SCM Approach

In the earlier days, an organisations link to manufacturers, suppliers, distributors and customers were inflexible. They somehow managed to get products to the market. An organization was often involved in paper-heavy transactions with questionable inventory forecasts, ironclad manufacturing plans and hypothetical shipping schedules. SCM has transformed this archaic process with its just-intime delivery, precise inventory visibility and real time distribution tracking capabilities.

Importance of SCM
The supply chain management system doesnt call for a Big Bang approach as in the case of ERP. Modest beginnings can also see enterprises notch up large gains, as the SCM cycle takes firm root. Earlier, companies often used supply chain to cut costs from existing operations rather than exploring opportunities for competitive advantage and differentiation. Now, for large corporates, supply chain is the fulcrum around which they operate. The Internet's ability to remove inefficiencies, break down communication barriers, reach disparate audiences and foster collaboration perfectly suit supply chain management. Businesses have leveraged the Internet for the same reason.

Importance of SCM (Contd.)

The supply chain leaders showed a market capitalisation compounded annual growth rate (CAGR) between 7 and 26 percentage points higher than the industry average. The innovative companies such as Toyota, 7-eleven Japan, Dell, Nokia, Wal-Mart and Zara, that were in the forefront of implementing supply chains resulted in outperforming their competitors and providing customer satisfaction. Nokia with fast moving product and discerning customers, altered its playing field with rapid-response manufacturing, quick-ship logistics and a global supply web to link its suppliers and plants and to also support its vendor managed inventory and collaborative planning.

Importance of SCM (Contd.)

These capabilities have contributed to a 20 per cent to margins, a 35 per cent market share, and an average cost to make and sell phones that is 18 per cent lower than its rivals. Improving supply chain performance can help companies cut down their inventories by 25-50 per cent, throughput time by more than 60 per cent while completely eliminating stock-outs and improving service levels. This could result in increased sales atleast by five per cent.

Indian Scenario
Indian corporations has shown a huge appetite for change and are able to withstand the vagaries of competition. The transformation that began in the 1990s has become more pronounced in the new millennium. A business confidence survey conducted by ET-NCAER in October 2002 covering 580 companies showed that most of the firms of size more than 100 crores are the first to introduce changes, be it in upgradation of information technology, introduction of IT in supply chain or retaining existing customers. An AT Kearney study ranked India sixth in terms of SCM potential. Indian companies have been far less wary than the Japanese in breaking decades-old supplier relationships.

Indian Scenario (Contd.)

The importance of supply chain in India can be gauged from the fact that logistics cost is in the range of 10-12% of the GDP. As per the recent CMIE database, over Rs. 1,00,000 crores of total capital is tied up in inventories in industrial sector. This is close to 22% of aggregate industry sales. This may be attributed to many reasons like increasing complexity and uncertainty of supply networks, globalisation of businesses, proliferation of product variety, and shortening of product life cycle.

Indian Scenario (contd.)

In India, logistics cost is high as compared to an average eight to nine per cent world over.

There is a tremendous potential for savings in this area.

Decrease in logistic cost by one per cent could save nearly $4.8 billion per year for the companies. Better supply-chain management could reduce cost substantially. SCM can improve profit margins by at least 18 per cent for organizations.

Traditional View: Logistics in the Economy (1990, 1996)

Freight Transportation Inventory Expense Administrative Expense Logistics Related Activity

$352, $455 Billion $221, $311 Billion $27, $31 Billion 11%, 10.5% of GNP

Traditional View: Logistics in the Manufacturing Firm

Profit
Logistics Cost

4%
21%

Profit

Logistics Cost
Marketing Cost Manufacturing Cost

Marketing Cost
Manufacturing Cost

27%
48%

Supply Chain Management: The Magnitude in the Traditional View

Estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies A typical box of cereal spends 104 days from factory to sale A typical car spends 15 days from factory to dealership Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago

Supply Chain Management: The True Magnitude

HP (Compaq) estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed. When the 1 gig processor was introduced by AMD, the price of the 800 mb processor dropped by 30%. P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand

What is a Supply Chain?

All stages involved, directly or indirectly, in fulfilling a customer request Includes manufacturers, suppliers, warehouses, retailers, and customers transporters,

Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service)

Customer is an integral part of the supply chain Includes movement of products from suppliers to manufacturers to distributors, but also includes movement of information, funds, and products in both directions Probably more accurate to use the term supply network or supply web Typical supply chain stages: customers, distributors, manufacturers, suppliers retailers,

All stages may not be present in all supply chains (e.g., no retailer or distributor for Dell)

The appropriate design of the supply chain will depend on both the customers needs and the roles of the stages involved in filling those needs. In India, typically, it is a multi-echelon distribution model.

Stages of a Detergent Supply Chain

Detergent Manufacturer

3 PL or own logistics

Super Market Store

Customer

Chemical Manufacturer

Packaging
Paper Manufacturer

Timber Industry

Supply Chain

Supplier
Supplier

Manufacturer
Manufacturer

Distributor
Distributor

Retailer
Retailer

Customer
Customer Customer

Supplier

Manufacturer

Distributor

Retailer

Flows in a Supply Chain

Information Product

Customer
Funds